July 15, 2019


Pondering Pigouvian possibilities (Skakel McCooey, 7/15/19, CapX)

Pigou, one of founding members of the Economics department at Cambridge, focused his work on externalities -- consequences of activities that affect third parties but are often not reflected in the cost of the goods or services involved. Because these externalities are effectively "market failures", Pigou suggested imposing taxes to raise the price associated with these actions. Therefore, activities that carry negative externalities would be disincentivised and their price would be, more or less, correct. [...]

The irony is that Pigouvian "taxes" hardly deserve their title. Unlike most other taxes, which warp the market, Pigou's creation corrects a market flaw to reflect the true price of harmful actions.

To Republican politicians, a Pigouvian tax by any other name would certainly smell sweeter. Perhaps a simple re-brand to a "Carbon Correction" could dissociate the negative connotation of the word "tax" from positive action of curbing climate change.

Labels aside, some conservative groups have already jumped on board.

While many proposals exist, one which is especially popular is from the Climate Leadership Council (CLC) -- a conservative group -- which prices carbon at $40 per ton and gradually increase each year. This fee would be imposed at the point where fossil fuels enter the environment -- the mine, well, or port. The returns would be rebated to the American public.

A clever "border carbon adjustment" would add a fee on foreign goods entering the US from countries that did not tax carbon. This would not only keep domestic goods competitive, but also incentivise trading partners -- like China and India, who have significant emissions -- to set ambitious prices on carbon as well.

As plans like these begin to emerge from conservative groups, the tide in the Republican Party may be shifting. Polling by Republican opinion guru Frank Luntz -- who championed the term "climate change" as a less "frightening" alternative to "global warming"-- suggests that the CLC plan enjoys 2-1 support among Republican voters, including 75 per cent support with GOP voters under 40.

Posted by at July 15, 2019 6:32 PM